Well-being : the foundations of hedonic psychology

This paper discusses the discounted utility (DU) model: its historical development, underlying assumptions, and "anomalies" - the empirical regularities that are inconsistent with its theoretical predictions. We then summarize the alternate theoretical formulations that have been advanced to address these anomalies. We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. Throughout the paper, we stress the importance of distinguishing time preference, per se, from many other considerations that also influence intertemporal choices.

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Time Discounting and Time Preference: A Critical Review

The economic theory of the consumer is a combination of positive and normative theories. Since it is based on a rational maximizing model it describes how consumers should choose, but it is alleged to also describe how they do choose. This paper argues that in certain well-defined situations many consumers act in a manner that is inconsistent with economic theory. In these situations economic theory will make systematic errors in predicting behavior. Kanneman and Tversey's prospect theory is proposed as the basis for an alternative descriptive theory. Topics discussed are: undeweighting of opportunity costs, failure to ignore sunk costs, scarch behavior choosing not to choose and regret, and precommitment and self-control.

Toward a positive theory of consumer choice

https://scholarworks.gsu.edu/cgi/viewcontent.cgi?article=1085&context=psych_facpub

Acceptance and Commitment Therapy: Model, processes and outcomes

Every form of behavior is shaped by trial and error. Such stepwise adaptation can occur through individual learning or through natural selection, the basis of evolution. Since the work of Maynard Smith and others, it has been realized how game theory can model this process. Evolutionary game theory replaces the static solutions of classical game theory by a dynamical approach centered not on the concept of rational players but on the population dynamics of behavioral programs. In this book the authors investigate the nonlinear dynamics of the self-regulation of social and economic behavior, and of the closely related interactions among species in ecological communities. Replicator equations describe how successful strategies spread and thereby create new conditions that can alter the basis of their success, i.e., to enable us to understand the strategic and genetic foundations of the endless chronicle of invasions and extinctions that punctuate evolution. In short, evolutionary game theory describes when to escalate a conflict, how to elicit cooperation, why to expect a balance of the sexes, and how to understand natural selection in mathematical terms.

 Comprehensive treatment of ecological and game theoretic dynamics
 Invasion dynamics and permanence as key concepts
 Explanation in terms of games of things like competition between species

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Evolutionary games and population dynamics

When choosing between delayed or uncertain outcomes, individuals discount the value of such outcomes on the basis of the expected time to or the likelihood of their occurrence. In an integrative review of the expanding experimental literature on discounting, the authors show that although the same form of hyperbola-like function describes discounting of both delayed and probabilistic outcomes, a variety of recent findings are inconsistent with a single-process account. The authors also review studies that compare discounting in different populations and discuss the theoretical and practical implications of the findings. The present effort illustrates the value of studying choice involving both delayed and probabilistic outcomes within a general discounting framework that uses similar experimental procedures and a common analytical approach.

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A discounting framework for choice with delayed and probabilistic rewards.

We describe a novel approach to the measurement of discounting based on calculating the area under the empirical discounting function. This approach avoids some of the problems associated with measures based on estimates of the parameters of theoretical discounting functions. The area measure may be easily calculated for both individual and group data collected using any of a variety of current delay and probability discounting procedures. The present approach is not intended as a substitute for theoretical discounting models. It is useful, however, to have a simple, univariate measure of discounting that is not tied to any specific theoretical framework.

Area under the curve as a measure of discounting

When offered a choice (Choice Y) between a small immediate reward (2-sec exposure to grain) and a large reward (4-sec exposure to grain) delayed by 4 sec, pigeons invariably preferred the small, immediate reward. However, when offered a choice (Choice X) between a delay of T seconds followed by Choice Y and a delay of T seconds followed by restriction to the large delayed reward only, the pigeon's choice depended on T. When T was small, the pigeons chose the alternative leading to Choice Y (and then chose the small, immediate reward). When T was large, the pigeons chose the alternative leading to the large delayed reward only. The reversal of preference as T increases is predicted by several recent models for choice between various amounts and delays of reward. The preference for the large delayed alternative with long durations of T parallels everyday instances of advance commitment to a given course of action. Such commitment may be seen as a prototype for self-control.

Commitment, choice and self-control

In this study, children, young adults, and older adults chose between immediate and delayed hypothetical monetary rewards The amount of the delayed reward was held constant while its delay was varied All three age groups showed delay discounting, that is, the amount of an immediate reward judged to be of equal value to the delayed reward decreased as a function of delay The rate of discounting was highest for children and lowest for older adults, predicting a life-span developmental trend toward increased self-control Discounting of delayed rewards by all three age groups was well described by a single function with age-sensitive parameters (all R2s > 94) Thus, even though there are quantitative age differences in delay discounting, the existence of an age-invariant form of discount function suggests that the process of choosing between rewards of different amounts and delays is qualitatively similar across the life span

/pdf/discounting-of-delayed-rewards-a-life-span-comparison-4h7plbihnj.pdf

Discounting of Delayed Rewards: A Life-Span Comparison

The present paper addresses the question of the form of the mathematical relation between the time until a delayed reward and its present value Data are presented from an experiment in which subjects chose between hypothetical amounts of money available either immediately or after a delay (Green, Fry, & Myerson, 1994) Analyses of the behavior of individual young adults demonstrated that temporal discounting is better described by hyperbola-like functions than by exponential decay functions For most individuals, the parameter that determines the rate of discounting varied inversely with amount Raising the denominator of the discounting function to a power resulted in better descriptions of the data from most subjects Two possible derivations of the temporal discounting function are proposed, a repeated choice model and an expected value model These provide theoretical interpretations for amount-dependent discounting but amount-independent exponent parameters

/pdf/discounting-of-delayed-rewards-models-of-individual-choice-cjd8zu8dct.pdf

Leonard Green

Papers

A discounting framework for choice with delayed and probabilistic rewards.

Area under the curve as a measure of discounting

Commitment, choice and self-control

Discounting of Delayed Rewards: A Life-Span Comparison

Discounting of delayed rewards: Models of individual choice.